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The impact of major life events on household asset portfolio rebalancing

Tracey West (Department of Accounting, Finance and Economics, Griffith University, Gold Coast, Australia)
Andrew Worthington (Department of Accounting, Finance and Economics, Griffith University, Gold Coast, Australia)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 26 July 2019

Abstract

Purpose

This paper aims to model the asset portfolio rebalancing decisions of Australian households experiencing a severe life event shock.

Design/methodology/approach

The paper uses household longitudinal data from the Household, Income, and Labour Dynamics in Australia (HILDA) survey since 2001. The major life events are serious illness or injury, death of a spouse, job dismissal or redundancy and separation from a spouse. The asset classes are bank accounts, cash investments, equities, superannuation (private pensions), life insurance, trust funds, owner-occupied housing, investor housing, business assets, vehicles and collectibles. The authors use both static and dynamic Tobit models to assess the impact and duration of impact of the shocks.

Findings

Serious illness and injury, loss of employment, separation and spousal death cause households to rebalance portfolios in ways that can have detrimental effects on long-term wealth accumulation through poor market timing and the incurring of transaction costs.

Research limitations/implications

The survey results are only available since 2001, and the wealth module from which the asset data are drawn is self-reported and not available every year.

Practical implications

Relevant to policymakers working on the ongoing retirement of the “baby boomer” generation and for financial planners guiding household investment decisions.

Originality/value

Most research on shocks to household wealth concern a narrower range of assets and only limited shocks. Also, this is one of the few studies to use a random effects model to allow for unspecified heterogeneity among households.

Keywords

Acknowledgements

The authors would like to thank seminar participants at Griffith University, Shandong University of Science and Technology and Qilu University of Technology, along with conference attendees at the 11th Biennial Conference of the Asian Consumer and Family Economics Association, 4th Indonesian Financial Management Association International Conference and 92nd Annual Conference of the Western Economic Association International for their helpful comments and suggestions.

Citation

West, T. and Worthington, A. (2019), "The impact of major life events on household asset portfolio rebalancing", Studies in Economics and Finance, Vol. 36 No. 3, pp. 334-347. https://doi.org/10.1108/SEF-11-2017-0318

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited